After crafting the initial features of the post-crisis bank-regulatory framework, global and U.S. policy-makers were dumbfounded to discover that costly new rules changed the competitive financial-market balance. Mirabile dictu, when costs rose for banks, banks changed their business model to cling to as much investor return as possible instead of, as regulators apparently expected, taking it on the chin to ensure ongoing financial-service delivery at whatever pittance of a profit remained. As markets rapidly and in some cases radically redefined themselves, global regulators dubbed the beneficiaries of this new competitive landscape “shadow banks.” At themost recent meeting of the FSB Plenary, they changed shadow banks to the less stealthy moniker of “non-bank financial intermediaries.” A newBIS working papershortens the scope of shadow banking to “market-based finance,” going on to assess a fundamental question: does the transformation of financial intermediation from banks to non-banks alter the income and equality landscape? The answer: It’s complicated.Continue reading “This Little Equality Goes to Market”→

Yes, I know – getting the post office into finance when you despair of getting your own mail, not the neighbor’s, is a stretch. But the economics of small-dollar banking under the post-crisis monetary and regulatory framework force a hard choice: create an equality-focused utility for otherwise-unbankable customers or consign them to the only financial sector that profits from them: predatory companies. Maybe someday fintech will figure out a way to handle huge volumes of small transactions, but some day is far away and un- and under-banked customers are losing income and wealth every day they cannot obtain affordable, sustainable financial services.Continue reading “What a Post-Office Bank Can and Can’t Do for Economic Equality”→

How do you make the financial system less stable and increase U.S. economic inequality at the same time? It’s not easy, but if you’re the Fed, then you accomplish this frightening feat by toughening up the annual CCAR stress test for the biggest banks without an eye to its systemic or market impact. Stress testing is fine – indeed an important addition to the post-crisis supervisory arsenal. But, CCAR itself is founded on two flawed premises: big BHCs are the heart of financial stability and nothing the central banks does adversely affects economic inequality. Continue reading “Caught in CCAR’s Cross-Fire”→